Falcone has invested clients’ money in Reston, Virginia- based LightSquared, which last year filed for bankruptcy.
The settlement, in which the SEC described Falcone and his funds as acting “recklessly,” is pending approval by the U.S. District Court for the Southern District of New York.
The settlement marks the first use of the new policy under White to seek admissions of fault in some cases. At the same time, it doesn’t bar Falcone from working as an officer or director of a public company, and doesn’t include an injunction barring him from future violations of securities laws.
Ceresney said in May the SEC would better tailor injunctions to the misconduct observed in specific cases.
“So it’s possible there was more than the usual horse- trading in this settlement, where the SEC gave up some of its usual relief in exchange for setting the precedent for admissions of wrongdoing,” said Russell G. Ryan, a former SEC enforcement attorney and now a partner in Washington at King & Spalding LLP.
The agreement is a “step in the right direction” because it shows the SEC can carry out White’s policy, said James Cox, a professor at Duke University School of Law in Durham, North Carolina, who specializes in securities law. Banning Falcone from the industry for five years, instead of simply fining him, constitutes “real repercussions.”
“Where we are more likely to see cases like this are in the investment-adviser and broker-dealer, market-professional areas, where the damages are more confined and contained, and the fear of mega-liability and private suits is more limited,” Cox said.
The SEC said Falcone, 51, misappropriated investor assets when he took a $113 million loan in October 2009 from one of his funds to pay personal taxes. At that time, he had restricted his clients from pulling their money from that fund. While he knew in April 2009 that he would have a tax bill in the tens of millions of dollars, he continued to spend money on renovations of his $49 million Manhattan townhouse.